Factoring is a financial transaction whereby a business sells its accounts receivables (invoices) to a third party (factor) at a discount.
Factoring is different than a bank loan. Factoring emphasizes on the value of the receivables. A bank focuses more on the value of the barrowers total assets. Factoring is not a loan but the purchase of a financial asset. It puts money in the bank without creating an obligation to pay it back.
Factors look to the stability of the customers of the business clients, because the customers will be paying the factor- not the client. The focus is more on the customer then the client.
Instead of having to wait for payment on a product or service that has already been delivered, a business can factor (sell) its receivables for cash at a discount off the face value of the invoice. This immediate cash offers a number of benefits to cash-starved companies: they can meet payroll, fund marketing efforts, have working capital, pay taxes, or meet any other needs.
An unpaid receivable or invoice has cash value. K-1 Financing, Inc. will pay cash now for the right to receive the future payments on a client's invoices to their customers.
There are three parts in factoring:
- The advance: a percentage of the invoice face value that is paid to the seller (client) at the time of sale.
- The reserve: the remainder of the purchase price held until the payment by the account debtor (customer) is made.
- The discount fee (commission): this is deducted from the reserve.
Factoring can be a short term or on/off relationship with us. No long-term contracts required. Factor only when you need to or utilize factoring as a permanent business cash flow solution.
Factoring has been used by nearly every business in nearly every industry as a short term or long term solution to the problem that faces every business at some point in time- cash flow.
Fill out the Factoring Application.